PROOF OF IMPACT...also increase. This results in money that flows through a small number of trusted mediators (see Fig 2. below). These trust mediators play a unique role in the universe

Proof of Impact

proofofimpact.com | [email protected] | @proofofimpact

Unlocking the

Intrinsic Value of Impact through Global Impact Capital Markets

White Paper v1.0

March 2019

PROOF OF IMPACT

Proof of Impact White Paper:

Unlocking the Intrinsic Value of Impact through Global Impact Capital Markets

https://proofofimpact.com page 2

Abstract

Impact is by and large invisible:

Those who want to fund it do not know if their money is put to work to achieve the impact

they seek.

Those implementing impact have very few means of showing the progress towards the

impact they achieved.

There is an opportunity to create a direct link between an impact event and its funding.

We propose to do this by building a global marketplace for impact capital. We argue that

this is the best way to connect impact outcomes to funding.

By combining emerging technology with transparency and financial engineering, we

anticipate that impact can eventually transition from an impact lens to a tradable asset

class thus improving both the amount and efficiency of investing in impact.

Figure 1 - Proof of Impact is creating a global Impact Marketplace that allows for the simple funding, execution and trading of impact investment products. The Marketplace is built upon the verification of impact data by creating unique impact event tokens.




Table of Contents

Abstract ................................................................................................................................................................................................................................................................................. 2

Context: Changemakers and the Purpose Economy ................................................................................................................................................................ 4

Impact: the currency of the changemaker generation...................................................................................................................................................... 4

Impact Financing today.......................................................................................................................................................................................................................................... 6

The Size of the impact market ................................................................................................................................................................................................................. 6

Current Challenges in Impact Financing ........................................................................................................................................................................................ 7

Challenge 1: The Impact Black Box .............................................................................................................................................................................................. 7

Challenge 2: Inputs vs. outputs ......................................................................................................................................................................................................... 9

Challenge 3: The double attribution problem ..................................................................................................................................................................... 9

Challenge 4: The cost of Evaluation ............................................................................................................................................................................................ 11

Challenge 5: Liquidity in Impact Markets ............................................................................................................................................................................... 11

A Global Impact Marketplace ......................................................................................................................................................................................................................... 13

Prerequisites :................................................................................................................................................................................................................................................................. 14

Individual Event Verification (Impact event proof points) ............................................................................................................................................. 14

Financial Structuring/ Financial Engineering ...........................................................................................................................................................................16

Blockchain’s Value Add ....................................................................................................................................................................................................................................... 21

Which is the best blockchain for Impact?.................................................................................................................................................................................... 21

The value of public blockchains ...........................................................................................................................................................................................................22

Do we need a native token? ....................................................................................................................................................................................................................22

The Impact Marketplace .................................................................................................................................................................................................................................... 24

Impact Seller: The User Experience ................................................................................................................................................................................................. 25

Step 1: Onboarding .................................................................................................................................................................................................................................... 25

Step 2: Selecting Impact Events ................................................................................................................................................................................................... 26

Step 3: Delivering and Tracking Impact Events .............................................................................................................................................................. 26

Step 4: Payments and Dashboards ............................................................................................................................................................................................ 26

Impact Buyers: The User Experience ............................................................................................................................................................................................. 27

Step 1: Buyer Onboarding ................................................................................................................................................................................................................... 27

Step 2: Research and Due Diligence ........................................................................................................................................................................................ 27

Step 3: Deploying Capital and Generating Returns .................................................................................................................................................... 27

Step 4: Tracking and Managing Impact ................................................................................................................................................................................. 29

Conclusion ....................................................................................................................................................................................................................................................................... 30

ANNEXES ............................................................................................................................................................................................................................................................................. 1

Annex 1: Proof of Impact Use case: Impact origination & Investment structure for Child Survival in Ethiopia ...... 2

Annex 2: - Proof of Impact Use case: Impact origination & Investment structure for Solar Energy ................................ 3

Annex 3: Proof of Impact Use case: Impact origination & Investment structure for Ocean Cleaning ........................... 4




Context: Changemakers and the Purpose Economy

In our lifetimes alone, economic fundamentals have shifted several times under the pressure

of innovation. Starting in the 80s, industry-centered models powered by capital and fixed

assets made way to information-centered models powered by technology and software.

Then, new models emerged, centered around social networks, powered by connections and

engagement.

Each era produced winners and losers. Every time, incumbents slow to embrace the new

rules were forced to submit to first-principle, new generation businesses that “got it right”.

Most recently, social engagement models gave people a taste of their potential power over

companies and governments. Yet there are strong signals that the “social economy” is

slowing down1.

Feeling exploited by false engagement and a forced social narratives, a whole new

generation of users are left wanting a more active, authentic role for themselves, in a new

type of economy, powered by new rules. These new consumers – we call them

Changemakers - are ready to define an identity for themselves through acts of positive

change. They care for their impact on the world. They need Purpose. And they want to be in

control.

Impact: the currency of the changemaker generation

Changemakers want to change the status quo. They don’t believe in output industries and

traditional economic theories that glorify growth without taking into account externalities and

the social and environmental long term costs. They don’t buy property, even when they can

afford it2. They don’t set up pension funds and do not invest in the stock market3. They

embrace alternative economic models that prioritize community and sustainability over fast

1 A new 2019 Children and parents: media use and attitudes report highlights the continuing decline of Facebook

use by younger demographics with 12-15 year olds with a Facebook profile decreasing from 40% in in 2017 to 31%

in 2018. 2 “Why young people don’t buy cars and apartments anymore” On brightside.me. 3 Joseph D. N. Kendrick: “Why Are So Many Young People Investing in Cryptocurrency?”




growth: Circular economies. Farm to table. Local, organic farming. Artisanal economies.

Social capital. Natural capital.

Conflicts and struggles on the other side of the world feel a lot more real than they did for

any previous generation. For the first time, perhaps this generation doesn’t only feel that they

may be able to cure disease, end poverty, save the planet, but they feel that it is their

responsibility to do so4.

Spearheaded by the Changemakers, a new economic paradigm is here:

The Purpose Economy. Powered by impact.

As consumers, businesses and policymakers adjust to The Purpose Economy, a need is

emerging for a dedicated, first-principles infrastructure that allows global economic

interactions at scale, around purpose and impact.

4 Excellent example of a quintessential Changemaker, Greta Thunberg, a Swedish climate activist, has told world

leaders: 'I don't want you to be hopeful, I want you to panic. I want you to feel the fear I feel every day and then I

want you to act.' In an impassioned warning to act now on climate change, Thunberg told her audience at Davos:

'Either we choose to go on as a civilization or we don’t' (Recording of her speech).




Impact Financing today

Current practices in impact financing and delivery are antiquated and marred by

inefficiencies that act as a significant barrier for innovation, and implicitly inhibit impact at

scale.

Figure 2 - Full Cycle of Traditional Project Funding. It takes in average 6-7 years for the impact of an investment to be evaluated or understood..

The main barrier in current delivery models is the fact that it is not possible for investors or

funders (or any other stakeholder) to know the outcome of an investment, before the project

has been completed. This reality affects every aspect of impact financing.

The Size of the impact market

We estimate that the minimum size of the impact market is between USD 900B - USD 1T

annually. This includes:

- USD 450 billion in private donations in the US alone5;

- USD 250 Billion in impact investing6; and

- USD 160 Billion in Overseas Development Assistance7;

Even by the most generous estimations, impact financing is minuscule when put into the

context of broader capital markets, considering that the estimated size of the stock market is

ca. USD 73Trillion8.

5 National Philantropic Trust - Charitable Giving Statistics 6 Global Impact Investing Network, 2018 Impact Investor Survey 7 The World Bank – Link to Dataset 8 The Money Project




It does not help that virtually all capital committed to impact is invested in initiatives and

projects that suffer from a common set of challenges.

Current Challenges in Impact Financing

Challenge 1: The Impact Black Box

When impact funding is deployed there is little to no visibility, creating the impact black box.

With no easy way to track funding performance or results, educated decisions on what

projects to fund and tracking the expected results become near impossible.

It is very hard to be data-driven and invest in efficient and effective impact that can be well

understood and measured. Once invested, it is virtually impossible to manage and adjust

investments, based on results.

This is why impact at any scale — regardless of the type of financing or the implementation

model — relies on expensive, inefficient infrastructures that have remained virtually

unchanged for the last four decades:

Because feedback loops are slow, much effort is put at the beginning into a detailed design,

further slowing the process. Hundreds of budget lines outline the smallest expenses,

projected over 3-5 years and departure from these projections is penalized.

Figure 3 – Funding and impact evaluation cycles in Impact Financing.




With increasingly slow feedback loops, the stakes and risk perception from potential funders

also increase. This results in money that flows through a small number of trusted mediators

(see Fig 2. below). These trust mediators play a unique role in the universe of impact funding

and delivery: they are known and therefore trustworthy. They have managed similar projects

before and know the game. These large incumbents pass much of the funding (and

deliverables) down to several levels of subcontractors, with their added value being

reassuring donors that the funds are well spent.

Donors and investors agree that incumbent players are large and expensive. Yet, there is no

acceptable alternative to invest large amounts of funding into projects with long-term

impact.

Figure 4 Trust mediators. In 2011 (the last year with available public data), 50% of United State’s Development Agency’s (USAID) awards by amount in 2015 went to 5 organizations (in fact they go to 4 organizations, as one of the 5 recipients is a differently branded venture of one of the others)1.




Challenge 2: Inputs vs. outputs

Because of the lack of visibility into actual performance, over the years funders have

developed a series of proxy metrics that are easy to track, yet provide limited insights into

the impact delivered. Some examples of proxy metrics that are of limited value include the

number of trainings administered, number of people reached, commodities delivered,

overhead to total budget ratios, operations cost to staff cost ratios. These metrics are

essentially inputs.

In the absence of real

performance data, inputs give

stakeholders a sense of precision

but end up being counter-

productive as implementers are

not allowed to adapt to changing

realities on the ground. In practice,

implementers become

incentivized to design and resource for predictable activities. Tracking inputs skews

incentives and generates further complexity across the industry. This use of inputs favors

tried-and-tested project structures that benefit incumbents and hamper innovation.

Ultimately it drives up the cost of impact.

The only question that should matter is: What exactly has been achieved with that money?

How many children have been vaccinated? How much solar energy has been generated?

How many people have been successfully treated of a given disease? How much plastic was

taken out of the oceans? These would be outputs.

Outputs bring higher value than inputs and should be the focus as we measure and

incentivize our pursuit of impact.

Challenge 3: The double attribution problem

Impact attribution is an assessment of how much of a certain outcome was caused by the

contribution of specific organizations or people9.

9 Social Value: Small Slices of a Bigger Pie: Attribution in SROI

“It’s very difficult to sort out who uses their money well. I understand [Charity Name] are extremely good at delivering their money on site, so to speak, and they keep their administration costs as low as they can, but so much of this is hearsay isn’t it?” (Breeze, 2010)




Mostly because of the slow feedback

loops, but also because of the

complexities involved in defining clear

causations and correlations, impact

attribution is among the most difficult

problems in impact. The golden standard

for attribution would be the randomized

control trial, which is slow, expensive and

impossible to run at scale.

Impact Attribution is a major variable influencing people’s decisions to give or not give to

charity, or otherwise fund or not fund impact10. Impact funders — whether they are donors or

investors — expect a minimum understanding of what exactly their money has “bought”. In

practice, organizations fail to deliver on this expectation, or, in their attempt to position

themselves as data-driven, they end up creating double attribution: the same impact event is

attributed to more than one donor.

Figure 5- Comparison between traditional impact financing and output-event based financing. One offers no clear attribution, the second one offers 100% impact attribution

10 Beth Breeze, How donors choose charities: Findings of a study of donor perceptions of the nature and

distribution of charitable benefit. Alliance Publishing Trust, Centre for Charitable Giving and Philanthropy, London,

2010 (Breeze, 2010)

“I don’t suppose we’re unique at all in feeling that we want to support those causes where the vast majority of the money is not swallowed up in high overheads and admin costs – that’s one of the major things that we think about’ (Breeze, 2010)




Challenge 4: The cost of Evaluation

The budgets of impact projects routinely allocate anywhere between 15% and 30% of the

total budget to monitoring and evaluation11, depending on the level of evidence required. In

addition to this self-evaluation, many projects also require external validation, which usually

involves large, multisite efforts involving more stakeholders which immediately increase

costs.

Additionally, due to the operational complexity in monitoring, there is a significant time-gap

between an activity and the related monitoring effort. This makes for very slow feedback

loops, slowing down speed and agility in impact implementation. Current monitoring and

evaluation hinders an implementer's ability to act on real data and optimize impact delivery

models in real time (see Fig 1 above).

Challenge 5: Liquidity in Impact Markets

Market liquidity is a market feature whereby an individual or institution can quickly purchase

or sell an asset without causing a drastic change in the asset's price. In other words, liquidity

defines how big the trade-off is between the speed of selling an asset and the price it can be

sold for12. In a liquid market, the trade-off is mild: selling quickly will not reduce the price

much. In a relatively illiquid market, selling it quickly will require cutting its price by some

amount.

Impact markets - such as they are - are extremely illiquid. The few impact investment

products (mostly social impact bonds), do not have any liquidity at all, which drastically

inhibits the flow of private capital into impact markets.

There are three key barriers that are preventing private capital from freely flowing into the

social impact space:

1) An unmet need among funders (including donors, investors, and payers) to quickly

and transparently see the direct impact of their contributions.

2) A lack of impact investment products that generate market rate returns based on

achievement of impact goals, as well as the lack of secondary markets to allow for

trading of these products.

3) The high costs and limited scalability of setting up highly customized, project-specific

investment products (e.g., social impact bonds) that require measurement of long-

11 Corporation for National and Community Service, Office of Research and Evaluation. (2013). Budgeting for

Rigorous Evaluation: Insights from the Social Innovation Fund. (by Lily Zandniapour and Nicole

Vicinanza).Washington, DC. 12 Mike Moffatt. "Liquidity - Dictionary Definition of Liquidity". About.com Education. Archived from the original on 17

April 2015..




term outcomes through burdensome evaluation methods (e.g., randomized

controlled trials).

SUSTAINABLE DEVELOPMENT GOALS In 2015, the United Nations (UN) developed the Sustainable Development Goals (SDGs) as a call to action for countries, governments, investors, and social organizations across the world to unite around 17 global goals focused on ending poverty and ensuring prosperity for all people and the planet. The UN developed specific measures to track progress and set a timeframe to achieve the goals by 2030, which were intended to drive a shared understanding and sense of urgency in carrying out the plan. The creation of this global agenda was a historic accomplishment in guiding meaningful change to solve the world’s most pressing challenges, but the estimated funding gap to achieve the SDGs is $2.5 trillion. A significant mobilization of private capital is needed to achieve the SDGs.




A Global Impact Marketplace

A global public and transparent Impact Marketplace would allow for easy funding, execution,

trading and of impact investment products. Such an Impact Marketplace would allow impact

buyers (i.e., donors, investors, payers, consumers) and sellers (i.e., impact implementers,

service providers, impact-minded communities, impact driven companies/corporations, etc.)

to come to a global platform, and trade events (i.e., outputs) across any sector or geography.

The Marketplace will have established market rates and returns for a set of measurable

impact events (impact outputs) that can be “bought and sold” by funders and implementers

alike. The completion of impact events will be rigorously validated using transparent and

predefined proof points specific to each type of event (see below: Verification), and each

completed impact event will be issued a digital certificate (“Token”) that is listed on a public,

immutable ledger.

Upon verification of impact events, implementers will be paid for their services and funders

will be able to easily view their return on investment, whether that be an impact return, a

financial return, or both. The Marketplace will operate efficiently by conducting transaction

settlement and impact attribution through the Proof of Impact payment platform, which will

allow for seamless transactions among all stakeholders involved.

Broader categories of impact events, or impact event types, will be the basis of the

Marketplace and will allow for easily traded -- and widely scalable -- impact

commoditization. At scale, the Impact Marketplace can allow the rapid directing of resources

to emergencies, and other priorities by increasing the flow of capital to related impact events.

The impact events listed on the Marketplace are outputs, not outcomes. Verified

immunizations, not units of child survival. The goal is to create a menu of impact event types

that are 1) highly correlated with achievement of outcomes, and 2) easily and objectively

verified.

The rationale for this decision is to simplify, standardize, and lower the cost of setting up

customized impact investment products and circumvent models that require the most

burdensome evaluation methods. In the Marketplace, each impact event type will have

predefined terms and all of the necessary information that users will need to participate,

cutting out the time and resources needed for planning, contracting, and negotiating the

terms of each customized impact investing project.




Proof of Impact has already begun developing this global Marketplace. As we are

implementing and scaling this model, there are several prerequisites that need to be

addressed in order to unlock the full potential of the marketplace.

Prerequisites :

Individual Event Verification (Impact event proof points)

Before an impact token can be created, the unique underlying impact event needs to be

objectively verified. The verification needs to fulfil a minimum set of criteria:

- The event to be verified is an output - Girls educated, Vaccinations. Tons of CO2 - that

correlates strongly with a higher level impact outcome (Reduction in child mortality,

Financial inclusion, etc);

- The event needs to be uniquely identifiable: it needs to contain unique features that

distinguish it from any other, similar events;

- The verification needs to happen in real time, or as close to real time as possible;

- The verification should be reasonably invulnerable to human error – Ideally the

verification should as much as possible be machine-generated;

Verifying these events is an operational challenge whose difficulty increases exponentially at

the last mile. Solving the verification problem is critical to the ability of this model to go to

scale. However, there is a tremendous opportunity for verification to evolve into a dynamic,

profitable market on its own.

Figure 6 - Proof of Impact is creating the technological infrastructure to manage the impact investment origination process end-to-end. The Impact Investment Platform has 4 primary nodes that convert verified impact events into investable securities.




Currently, there is relatively little

verification happening. Most outputs

that get counted by impact

implementers are either self-reported

(by front-line staff such as nurses or

community health workers), or they

are modeled based on samples

collected through surveys. Sometimes

- rarely - they are individually audited.

However, there is currently a vibrant

ecosystem of verification applications

being developed and implemented in

projects across various sensors. Most

of these are mobile-based. Some of

them use features inside mobile

phones (GPS, camera, biometrics).

Others rely on combinations of specialized devices and cell phones.

As verification models and technology evolve, they free up frontline workers to focus on

delivering impact rather than filling in paperwork. They also eliminate significant data flaws,

increasing the quality of the data and its usefulness.

IOT devices are becoming cheaper and more reliable, with new technologies vastly

improving problems related to batteries and connectivity13.

These technology advances are making real-time, individual event verification possible at

scale and in frontier operational environments. We expect a vibrant market to emerge where

dedicated verification businesses will develop products and services for event verification.

Each type of event is different - by its nature as well as operationally - so specialized

verification models will emerge. High resolution satellite images to verify forest regeneration.

Biometrics to verify identity. QR codes scanned on delivery. Verification can be highly

specialized, and, as long as there are incentives in place, scalable verification models will

evolve.

As that happens, platforms such as POI will simply treat verification as a micro-service

connecting into the Marketplace APIs and providing the trigger for the impact token to be

minted.

13 Examples of such technology evolution include LoRa, narrowband IoT (NB IoT) or LTE Cat M1. These are long-

range low-power wide-area network (LPWAN) wireless communication protocols achieving extremely long range

connectivity (100km+).

Figure 7 - Types of verification in reverse order of reliability




Figure 8 The minting of impact tokens: Each event has a custom verification model. The result of the verification is a simple standardized signal sent to PoIP APIs

Financial Structuring/ Financial Engineering

Once the event has been verified and the token is minted, you now have an official, validated

impact event. This impact event can now be privately held, transferred or transacted like any

asset, which lies the big opportunity: We can now structure financial products around impact

events.

The most basic financial structure is simply a digital attribution. Because the impact event is

unique and identified on a public ledger, there is full impact attribution. Whoever paid for the

impact event owns the token, which means they own the impact attribution. For example, a

funder gets credit for their donation and visibility into how their money was spent.

But the exciting opportunity is to build financial structures that are a bit more complex and

that would be attractive to wider segments of investors. Some examples include:




a. Simple Output tokens

Output Tokens are verified events that are made available to a buyer in a private sale or

on a secondary market. This is the most basic model for a financial product: the buyer

receives attribution and the seller receives cash. The transaction can be pre-paid or post-

paid. Outputs can be sold/ bought clustered/ batched or individually.

b. Event-triggered Performance based tokens (PBT):

A Performance Based Token is a smart contract by which a buyer and a seller agree to

purchase verified individual events at a pre-agreed price. Transactions can occur

clustered or individual and the payment can be made up-front, in real time or at delivery.

In an event-triggered PBT, the buyer puts forward an offer to purchase specific events

Figure 9 – A simple Output Token model

Figure 10 - Event-Triggered Performance-Based Token




(i.e.: individual trees planted) at a pre-agreed price. This offer is locked in a smart contract

and the Money gets transferred into an escrow account. Every time an impact event is

verified, the corresponding amount of money is released in the seller’s account/ wallet.

c. Outcome Tokens are structured on top of an impact theses that uses available evidence

to model correlations between outputs and outcomes. An example of an outcome token

would be a token corresponding to a ton of CO2 sequestered out of the atmosphere

(outcome). This outcome would be essentially a portfolio combining a pre-defined

number of outputs (individual trees planted), based on the assumption that there are X

trees necessary to absorb 1 ton of CO2 in one year.

d. Tokenized Impact Indexes are outcome tokens structured around impact thesis that are

more complex than a simple outcome correlation. For example, a Child Survival index

would be balanced around different types of individual events that correlate to child

survival: Pregnancy Milestones, Ante-Natal Care Visits, Immunization, Nutrition, etc.

e. Tokenized Impact Bonds. A tokenized impact bond is structured around an offer made by

an outcome underwriter (outcome buyer) to pay a pre-agreed amount if a certain

outcome is achieved. For example, an Underwriter would offer a payment of 30mil EUR

for a min 5% reduction in child mortality in a given community. Investors purchase

individual events (outputs) that are known to correlate with the respective outcome – i.e.

immunizations, ante-natal-care visits, etc. Once sufficient output events have been

verified, the outcome milestone is met and the Underwriter is paying investors their

investment plus a premium. Investors make a profit for putting capital towards




immunizations and the underwriter gets 100% outcome attribution while only paying for

success.

f. Tokenized loans; A tokenized loan allows a community/ recipient to borrow money for a

specific purpose (build a hospital, build a school, roll out broadband, upgrade grid,

irrigation scheme) and then pay back the lenders over a pre-agreed period of time.

Tokens get issued to lenders and the capital thus collected is invested in the agreed

purpose.

g. Others (Complex financial products, Futures, Other Impact products,). Once impact events

are liquid and viewed in the market as an asset class, more complex financial products

can be structured and listed for trading. Other sectors and markets – financial and non-

financial - can benefit from integrating elements of event verification and/ or tokenized

outputs into their products. Donor-Advised funds can use them to track performance.

Companies can use them to reward milestones or loyalty along their value chains.

Corporations can put impact assets on their balance sheet to prove their impact

portfolio/footprint – either voluntarily or as part of regulatory compliance14. Businesses

14 Examples of such compliance requirements include: Carbon Credits, ESG Requirements as well as regulatory

requirements in specialized sectors and geographies. In Mozambique, for example, companies in the mining

sector are required to prove investments in community projects proportional with their profits. In India, companies

above a certain size are required to invest in training of their staff.

Figure 11 – Tokenized Impact Bond




can offer buyers in one part of the world the opportunity to invest in specific outputs on

the other side of the world, through simple acts of product purchase.

Figure 12 – Impact Collateral. Unique impact events in SDG categories 3, 7 and 14 are currently flowing into the Impact Marketplace. Impact events that are delivered and validated, can now be pooled across the platform to create collateral for investment products (From Real POI Use cases – see also annexes for more details).




Blockchain’s Value Add

We explained above the importance of verifying unique, individual events. Once verified, and

in order to make them attributable, these unique events require a digital confirmation that

contains all the unique variables. A digital representation to the real life, verified event. This

digital representation is called a Token.

Each time a child is vaccinated there is a new token issued. Every time a TB case is treated or

a pound of plastic is taken out of the environment, there are corresponding tokens issued.

However, digital entries into a ledger is not enough – simple digital entries can be copied,

multiplied or tampered with. This would be an unacceptable risk in our model, where the

corresponding events are priced and monetized and therefore need to maintain unicity.

Some of these risks can be addressed with checks and balances, audits, governance etc.

and if our purpose would be simply to track these events (as a smarter alternative to

traditional Monitoring and Evaluation), centralized, public databases (such as DHIS215) would

be the best model to adopt.

But since these tokens are valued and monetized, in order to make trading possible investors

need the option to hold impact tokens — essentially holding full attribution for unique

events — without having to have any relationship with any organization or entity, or having to

understand/ evaluate reliability of any one monitoring database16. As long as they prove

token holding they prove attribution. This means that they can trade these tokens, essentially

taking their money out and passing the attribution to someone else. And because all tokens

are listed on a public, immutable ledger, they can trust that they are genuine and they can

even track their history if trading on a secondary market. This will accelerate the emergence

of global impact capital markets accessible to anyone, anywhere in the world.

Which is the best blockchain for Impact?

Proof of Impact is an impact company, not a blockchain company. As such, we regard the

blockchain as a critical tool in our infrastructure, but not our core business. We see ourselves

as agnostic to blockchains and keen to integrate any/ as many blockchains as necessary to

deliver on our core business.

Currently 4k+ developers contribute code across 2.8k public blockchains every month17,

globally. This is just core development. Further resources are dedicated to building

15 District Health Information Software 2 (DHIS2) is an open source, web-based health management information

system (HMIS) platform. Today, DHIS2 is the world's largest HMIS platform, in use by 67 low and middle-income

countries (project site). 16 This principle remains true even in the likely scenario where POI maintains custody of the tokens on behalf of

users, in “hot wallets”. 17 Electric Capital, The Dev Report. March 2019 (Link to report)




permissioned layers and infrastructure on top of these blockchains. Many of these

developers are best in class and they are members of active communities building a global

infrastructure that changes every day. They solve complex problems that transcend

technology and touch upon security, governance and game theory.

As a first-principle company in this emerging space, it is our responsibility to build on top of

the existing infrastructure - and indeed evolve with and contribute to this infrastructure as it is

growing into a global force.

We chose to build our prototype on the Ethereum Blockchain out of convenience. Ethereum

has the biggest developer team in crypto, by far. On average, 216 developers contribute

code every month to Ethereum’s repos (not including hard forks and secondary layers). This

is more than 4X the number of active developers that contribute to Bitcoin’s repos (ca 50

developers per month), the second most active project18.

Although we are working on Ethereum, the POI architecture is designed such that we can

easily integrate any other blockchain or token: for example, a token issued on a different

platform can be easily integrated into the PoI protocol and structured into an impact product,

connected to a payment or any other transaction.

The value of public blockchains

Our value proposition to investors and the wider impact space is around transparency,

attribution, traceability and investability. A public blockchain’s immutability is a critical

argument in favour of using blockchain (vs. a centralized database) for our model.

Do we need a native token?

POI does not have a native token. Verified individual events have corresponding tokens on

our platform that can be traded (either as digital confirmations of value/ attribution or as

securities), but there is no native token used for payments across our platform. Some of our

impact tokens are fungible, others are non-fungible.

We decided against issuing a dedicated token for two important reasons:

1) We would like investors to be able to pay directly with cash and invest only in the sort

of impact that they want to; We do not want to “lock” buyers or sellers into our

platform, or create an additional transaction layer necessary to participate in the

marketplace.;

2) Some of our user segments should not be expected to be blockchain literate. Among

others, we work with low income and low tech users and we also work with large,

traditional partners (governments, large Non-Profits, multi-nationals). We believe that

as much as possible, we should “hide” the blockchain component from users. We

18 Ibid




believe that the winning model has the blockchain solving specific problems at a

platform level, without hampering the user experience.




The Impact Marketplace

The Marketplace is designed for two primary users: Impact Implementers (sellers) and

Impact Buyers:

1) Impact Implementers (Sellers) include anyone who has the capability to implement a

relevant impact event. They can include any type of company or organization or

individuals. A local hospital delivering immunizations. A non-profit distributing clean

cookstoves. A school. A multinational or a small company wanting to demonstrate the

social and environmental standards they adhere to in their manufacturing or

production processes. Intermediaries in supply chains who want to make the

economic distribution of their supply chain transparent. Local health providers that

want to access additional sources of income. Local communities planting trees or

cleaning beaches.

2) Impact Funders (Buyers) can include traditional institutional and individual impact

donors (i.e., who give unrestricted funds that are not contingent on an impact event),

investors seeking impact return only (i.e., who give donations that are linked to the

achievement of impact events, but not linked to a financial return), investors seeking

both impact and financial return, and payers who pay upon successful impact

delivery (e.g., government entities, philanthropy).

Just like in any marketplace model, the two primary user types have different needs and

different navigation options/ experiences in the Marketplace and, as needed, dedicated

pieces of infrastructure (wallets, admin panels, dashboards). The Marketplace is in the public

domain for anyone to view the available impact tokens, track their history, research their

context and study the order book. As the Marketplace matures, more impact events will be

added, others will be removed, and those with the greatest success will continue to be

funded until the outcome is achieved.




Impact Seller: The User Experience

At scale, sellers have the ability to browse a searchable menu of impact event types and

view how much they would be paid for successful submission of unique events. They also

have the ability to suggest new categories of events and offer them to buyers.

The Marketplace will also indicate which impact event types have committed capital that is

ready to be deployed. This searchable menu of impact event types, and associated price per

impact event, will be publicly available and will allow Implementers to learn which impact

areas funders care about and demonstrate why they should join the Marketplace.

Currently – as we grow the marketplace and define quality verification standards -

implementers need hands on guidance on how to structure their data, proof points and

operations to become suitable for platform access.

Step 1: Onboarding

Sellers complete a standard signup and account creation, followed by an onboarding

process. The onboarding allows Sellers to create a profile that includes choosing their

industry characteristics (e.g., industries, SDG focus areas) and selecting one or more of their

preferred funding mechanisms (i.e., paid upon impact event, selling future impact events,

and/or receiving non-contingent donations with no impact event). Implementers will be able

to fill out and upload their organizational characteristics (e.g., tax status, prior audits, and

annual reports).

Figure 13 – Impact Investing 3.0. By leveraging the POI Marketplace, we can apply real-time, granular impact attribution with financial engineering to originate impact investments at scale.




Step 2: Selecting Impact Events

Upon creating a profile, sellers are directed back to the searchable menu of impact event

types. For each impact event type, they will be able to look up the definition, price per

impact event, delivery requirements, exclusion criteria, and other information needed to

determine their capability to deliver verification that achieve the impact event. Sellers will

then select the impact event types that they would like to add to their profiles, along with

their track record and evidence base of completing these impact event types. Sellers also

have the option to propose adding impact event types not on the menu for consideration.

After the impact event types are added to the Seller’s profile, they will be able to see near-

real-time which impact event types have open capital committed by Buyers (i.e., capital for

any Implementer to gain upon completion of an impact event) and which impact event types

do not have capital committed.19

Sellers will also be matched with Buyers who have committed closed capital (i.e., capital in

which Buyers choose the Sellers who will receive the funding). Sellers and Buyers will be

able to view their matches and then have the ability to communicate and share information

on an enhanced messaging platform. Sellers and Buyers can then commit to engage in a

partnership based on a selected amount of capital or selected number of impact events or

any other variables. Sellers and Buyers can also agree to pursue and set their own terms for

a donation or loan on this enhanced messaging platform .

Step 3: Delivering and Tracking Impact Events

Sellers will then begin to deliver verification proof for their selected impact event types. For

each impact event type, Sellers will need to track and input all required data points (as

instructed on the impact event type menu) to verify their completion of each unique impact

event. For tracking purpose, Sellers will be instructed to select whether they will submit their

data manually (e.g., by uploading timestamps, photos, bar codes, vitals, and other necessary

data points into the Marketplace data entry page), or automatically by connecting the

organization’s existing data entry systems and delivered through an API connection. Once the

data has been validated a corresponding token is created and added to the ledger. From this

moment on, the impact event can be traded.

Step 4: Payments and Dashboards

The Proof of Impact Protocol has a payment layer that allows fiat and crypto deposits and

withdrawals. The impact event payment will automatically be processed through the Proof of

Impact payment and settlement platform and placed in the Implementer’s account. This can

happen manually or through smart contracts, depending on the structure of tokens traded.

Implementers will be able to link existing bank accounts to the Marketplace and transfer

funds accordingly. Implementers will also be able to view an interactive dashboard that

tracks their impact events delivered (submitted, validation passed, validation failed), total

19 If the available supply of impact events with committed capital is exhausted, Implementers will be automatically

notified when a new Funder has committed capital.




funding, and total impact. This will be a downloadable and exportable document that can be

used for future fundraising purposes.

Impact Buyers: The User Experience

Prior to sign-up, Buyers will also be able to explore the Marketplace, browse a searchable

menu of impact event types, and view the cost of each impact event type and the associated

return on investment they could expect to receive for each impact event completed, as

applicable (i.e., if they are seeking a financial return in addition to their impact return).

Step 1: Buyer Onboarding

Onboarding for Buyers will include the standard account creation and linking to payment

methods, followed by the Buyer selecting their preferred type(s). As noted above, there are

different segments of buyers:

1. Institutional or individual funders (i.e., giving unrestricted funds that are not contingent

on an impact event)

2. Investors seeking impact return only (i.e., donations linked to achievement of impact

events, but not linked to a financial return)

3. Investors seeking both impact and financial return

4. Payers who pay upon successful impact delivery (e.g., government entities,

philanthropy)

Buyers can define their own preferences if they want to: impact areas of interest, target

geographical areas, and select from the publicly available menu of impact event types that

they would like to fund.

Step 2: Research and Due Diligence

Prior to committing capital, different buyer types will have different informational needs

regarding the validation requirements and proof points for each impact event type,

evidence-base and track record of the Implementer, and target population, among other

design factors. For this reason, Buyers would have the option of committing capital to impact

event types as a commodity, agnostic to which Implementer delivers the impact event, or

they could select a specific Seller profile that they are comfortable supporting and commit

capital to pay for impact events delivered by that specific Implementer. Based on the Seller’s

profile selections, they will also be automatically matched by the Marketplace to sellers that

share the same focus areas for funding consideration.

Step 3: Deploying Capital and Generating Returns

Buyers can deploy capital at different times: upfront, performance-based, or instant:




- impact investors commit capital upfront, but that capital is still only deployed when

impact events are delivered. The key is that they don't receive their financial return

until impact is delivered at scale.

- Buyers seeking impact and financial returns will deploy their capital upfront with the

potential to gain their original funding back plus a financial return upon the successful

delivery and validation of impact events

The Table 1 below illustrates the flow of capital depending on the role of the Funder and

Implementer.

Table 1: Capital Flow by Stakeholder

Steps Seller

Buyer

Funder

Investor

(Impact

Only)

Investor

(Impact +

Financial)

Payer

1. Onboarding Create profile,

selects impact

event types,

match to

funders

Choose preferred Funder type(s), select desired impact

event types from menu

2. Impact Delivery Deliver impact,

collect data

Donate capital

(not

dependent on

impact event

completion)

Conduct

due

diligence on

Implementer

s, commit

capital

Conduct

due

diligence on

Implementer

s, enter

desired

returns,

commit

capital

Conduct

due

diligence

on impact

event

validation,

commit

capital +

return

3. Impact

Validation

Upload data,

predefined

validation

process occurs

N/A N/A N/A N/A

4. Capital

Deployment

Receive

payment for

impact events

completed

N/A Payments

sent to

Implementer

for

completed

impact

events

Payments

sent to

Implementer

for

completed

impact

events

Pays

investors

back their

capital

5. Returns on

Investment

N/A Receives

impact

attribution

Receives

impact

returns

Receives

impact and

Pays

financial




financial

returns

returns to

investor

Upon successful completion of the impact events, capital (including upfront funding and

returns) will be automatically deployed to the appropriate stakeholders.

Step 4: Tracking and Managing Impact

Buyers have access to streamlined dashboards and analytics tools that will allow them to

view and manage all of their investments in one location. They have the ability to view total

committed capital versus deployed capital (by sector, category, impact event type, country,

Seller, etc), view their impact and financial summaries, and receive automated notifications

when individual impact events (or larger impact and financial goals) are achieved. They can

also see their aggregated impact in the wider context of impact delivered in the respective

category/ geographic area/

timeframe. The Platform also

provides exportable financial

reports, tax information, and audit

reports needed for external

reporting purposes.

“If I’m going to be giving away some money, it’s like buying things in a shop, I want to be sure I’m getting good value for it, as it were”. (Breeze, 2010)




Conclusion

The emergence of global Impact capital markets will bring together all segments of impact

stakeholders as well as investors, funders, large small and medium companies, governments

and communities to buy and sell/ deliver impact outputs and outcomes.

In order for these impact capital markets to emerge, several prerequisites need to be

fulfilled. These are related to fast, reliable event verification at scale, financial engineering

and trading infrastructure.

Proof of Impact is addressing these prerequisites and is building the world’s first liquid impact

capital marketplace. Through a streamlined and transparent process that allows buyers to

know the precise impact of their time and resources, the POI Marketplace will rapidly

accelerate the pace of private capital investments into social and environmental programs,

and harness the engine of capitalism for social good.

At Proof of Impact, our hope is that the Marketplace will provide a venue for people across

the world to work together in ensuring prosperity for all and protecting our planet. Our dream

is to not only achieve the SDGs by 2030, but also provide a tool to rapidly solve new

problems that arise for our future generations. Will you join us?

PROOF OF IMPACT March 2019

Proof of Impact

proofofimpact.com | [email protected] | @proofofimpact

ANNEXES




Annex 1: Proof of Impact Use case: Impact origination & Investment structure for Child Survival

in Ethiopia




Annex 2: - Proof of Impact Use case: Impact origination & Investment structure for Solar Energy




Annex 3: Proof of Impact Use case: Impact origination & Investment structure for Ocean

Cleaning

Documents

PROOF OF IMPACT...also increase. This results in money that flows through a small number of trusted mediators (see Fig 2. below). These trust mediators play a unique role in the universe